MBA, Deputy Director, Global Sales Strategy at ANA Cargo Inc. Disclaimer: Comments and opinions are my own.
The air freight industry, finds itself in a perpetual loop of cyclical losses and sporadic profitability. This cycle is driven primarily by an inconsistent and often irrational deployment of capacity. But, there's more to the story than just overcapacity. The industry's challenges arise from an inability to comprehend the intrinsic links between passenger demand, combination carriage capacity, and the deployment of passenger aircraft capacity. Relying on the hope that prices will go up without adding actual new value is a shortsighted approach. This strategy might offer occasional windfalls but also brings prolonged periods of losses. Profitability should ideally be based on the value provided to customers, rather than the chance that external market conditions drive up price. Irrational capacity deployment is a persistent, historical Problem. The air freight industry has long seen the cycle where capacity is pumped into the market without comprehensive strategic planning. In the The Loadstar article, Van der Stichele's observation about the influx of new capacity not being well thought out is a testament to this issue. Such an approach results in a scenario where there are a few hugely profitable winners, more often than not, a lot of victims, and even players who don't know they are victims. All cargo operators often overlook a crucial factor: the base effects of combination carriage capacity being intrinsically linked to passenger demand. When passenger demand fluctuates, it impacts cargo capacity in sometimes unpredictable ways. This interdependence means that any significant change in passenger trends will invariably affect cargo markets. On the same side, combination carriers often underestimate the base effects of the deployment of passenger aircraft capacity. The parent carrier may even fail to recognize that deploying larger aircraft for passengers inadvertently increases the available cargo space, potentially leading to oversupply in the cargo market. One potential way to break this cyclical trap might be the reduction of the average size of passenger aircraft over time. We have actually been in a long term aircraft downsizing trend for about two decades. I remember when every jet at NRT airport was a 747, years later, it was all 777's and A330's. Now more 787's and A350's than any other type. As passenger aircraft size decreases, perhaps the cargo market will be less sensitive to what's going on in the passenger side of the operation. If the trend continues towards smaller aircraft with less excess capacity in the holds, it might very well reduce the business cycles in the air freight industry and stabilize the carriage of air freight around, well, freighters. https://lnkd.in/gZuJbiEZ
Michael Fry
1y
The high cost of obtaining an AOC, before a revenue flight takes place, means many operators start heavily in debt, remain in debt and are highly susceptible to global, regional or even national shocks in costs, demand or regulation.
Neil Wilson
1y
Very thought provoking stuff!
This is a very complicated business. Thank you for sharing Jonathan Holmes
Air Cargo / Airline Business Executive (Head of Cargo Oman Air)
1yNothing much new here... slight re-arrangement of the "causal" pieces in the puzzle. Passenger and even combination carriers almost totally deploy passenger capacity and then consider the cargo impact at a much lower consequence level. And even Jonathan's premise that smaller pax capacity, more modern twins might impact doesn't hold true as these aircraft are much more efficient cargo carriers... From a charter perspective the market correlates to more available freighter capacity, meaning better and cheaper charter solutions... but we should also note that the real impact here is more result of market production issues (read "China") where the bulk of primary freighter capacity is deployed (and only so many passenger flights will operate - indeed China passenger capacity deployment remains well below previous norms) & knock-on impacts of secondary freighter deployment (causing over-capacity in those markets, because everyone is chasing the kilograms!) And we end up in the cyclical race to the bottom, rates through the floor, until survival of the fittest ( often actually equals deepest pockets, biggest government support or worse money laundering!) and prolonged wait for some sort of equalisation and re-balancing - again!!